Dayakar Puskoor is the Founder and Managing Director of Dallas Venture Capital (DVC). A serial entrepreneur turned visionary investor, Dayakar launched one of the first tech-focused venture funds, investing in groundbreaking early-stage startups in cloud, AI/ML, and mobile technologies. In this conversation, we discuss Dayakar’s venture journey, how startups get funded, how equity works, startup exit strategies, and much more.
Where to find Dayakar
Full Bio: https://dallasvc.com/dayakar-puskoor/
LinkedIn: https://www.linkedin.com/in/dayakarp/
Twitter: https://twitter.com/dpuskoor
About DVC: https://dallasvc.com/about/
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Intro (00:00):
Dayakar Puskar is the founder and managing director of
Dallas Venture Capital.
A serial entrepreneur turnedvisionary investor, dayakar
launched one of the firsttech-focused venture funds,
investing in groundbreakingearly-stage startups in cloud,
ai, ml and mobile technologies.
In this conversation, wediscuss Dayakar's venture
journey, how startups get funded, how equity works, startup exit
(00:24):
strategies and much more.
William (00:38):
Hello and welcome to another episode of the Cloud
Gambit.
This is going to be an episodewhere we're kind of going down a
different sort of a differentpath, um, with a few different
areas, and um, for that I have aspecial guest, someone that is
an expert, um in these areas.
So, um, if you wouldn't mindintroducing yourself, lady
(01:01):
carter sure, sure, my name?
Dayakar (01:03):
My name is Daya Akarpuskur.
I'm founder and managingdirector at Dallas Venture
Capital.
And my background I started myfirst job at Motorola for 10
years.
That was then, after that,started a company here, a
company called JP Mobile focusedon mobile messaging software.
And that company in 2000, weraised a bunch of money and
(01:25):
planned to go public.
Then that never happened, didnot go public, but then we were
able to merge that company witha company called GoTechnology.
Then it was acquired byMotorola.
I had a short stint atMicrosoft After that.
Then I started a venture fundused to be called Naya Ventures
in 2012.
(01:46):
Then 2021, we changed the nameto Dallas Venture Capital.
So now our fund has grown,first fund to now the latest
fund, close to $150 million inAEM assets under the main
mentality now.
William (02:08):
Awesome.
So first of all, I just want tosay thank you for your time,
thank you for joining and I'mreally glad we could get this
together and make it happen.
You know, I believe both of us.
I think we happen to be on arooftop eating dinner in dallas
and I was talking to one of youradvisors just about the
challenges for new technologiststhat are new engineers that are
(02:28):
kind of going into the startupspace with just understanding
the equity component of it,understanding how venture
capital works at a high level.
A lot of those.
There's a lot ofmisunderstandings and just not
knowing.
So I think this will be a goodconversation.
We can kind of dig down into afew of those areas.
(02:51):
Thinking about venture capital,it's much sort of beyond
funding and that goes into howVCs support founders.
Every founder at some point wasa first-time founder and many
were actually engineers.
So how does Dallas VentureCapital sort of support founders
(03:13):
and provide value, like, say,mentorship or strategic guidance
or whatever, to just make abigger impact and drive success
for founders and for thestartups?
Sure, william, one thing Iwanted to say to just make a
bigger impact and drive successfor founders and for the
startups.
Dayakar (03:26):
Sure, william, one thing I wanted to say congrats.
Looks like you've been doingfor a podcast for one year.
Right now Looks like you'recoming up in August.
I listened to some of them.
I've done a great job with someof the founders.
I listened to a few things.
I learned a lot what kind ofquestions you asked and really
how other people were able toprovide good information.
(03:47):
So it seems like really it's agood session for me to kind of
express what we do at DallasVenture Capital.
So, as I mentioned, I became anengineer, as you mentioned, then
became a founder, then reallydecided to go into venture.
So a lot of people ask me whydid you go into venture from a
(04:13):
founder?
So I felt really I learned alot from my early days.
We'll talk about how I haveraised capital and all that, but
from those learnings I feltventure capital is one of the
best asset class If you look ata financial stack to really if
(04:37):
you want to contribute and also,same time, learn.
I really feel like I learnevery day from these founders,
from ecosystem players.
So with that, really, butfocused in a b2b software, you
know, uh, venture fund and beingin dallas, uh, and coming from
(04:58):
uh, as I mentioned, like with mytechnology and operational
background, we want to make sure, like we add a value.
All most of the vcs do a greatjob in my opinion, but we want
to make sure, like what we sayreally, you know, show in
results.
To do that one, we have createda within our venture fund.
(05:19):
Usually most of the funds callusually most of the funds call
portfolio growth.
We created what we call aDallas Venture Capital DVC
advantage.
Dvc advantage is nothing butreally how do we help our
portfolio companies, once theyhave product market fit or some
(05:40):
traction, take them from that $1million to $10 million revenue?
How do we help them to do thatone?
We actually created a uh withinthis dvc advantage.
You can call we have fourpillars.
First pillar is really the mostimportant pillar how do we help
them?
And the go-to-market strategy,business development and sales
(06:02):
as the biggest problem.
I have seen a lot of startupsface like I faced.
I went through almost seven VPof sales until we find the right
salesperson.
So that's where really Ithought we can add most value,
but not just saying it.
We created, even though we're asmall fund, we have three
(06:24):
full-time partners working onhow do we help out these
portfolio companies Mostly theyare coming from operational
business development backgroundsand using our own network of
advisors and investors.
We were able to have a goal toclose at least two customers for
(06:45):
a portfolio company, and notonly closing two deals, but also
how do we get them close to onemillion dollar annual recurring
revenue.
As you know, like that day whenyou met us, we had three or
four of our advisors, you know,trying to talk to our portfolio
company sales team, what kind ofhurdles they're facing, how we
(07:06):
can help them right.
So that's, I think, really thefirst pillar.
Second pillar is how do we helpthem hiring, uh, mainly on the
sales and financial side.
Uh, one of the major problem Ihave seen, uh, startups, you
know, have a hard timerecruiting good sales leaders
Because really, sales leaderscome with a what I call a wolf
(07:28):
pack.
They come with their team andthey had to make sure, like,
execute what they need.
So to hire that kind of a salesleader, until they get to
series B and C, you will not beable to, you know, afford to
hire those sales people.
(07:48):
To be honest, I think that'swhat really we feel like you
know, using our Rolodex and ournetwork, how we can deploy this
CROs, and we have done with afew of our companies.
For example, coreai CoreStack,we were able to actually help
them.
A VPF channel, a customersuccess officer it made a big
(08:09):
difference for the company.
The third pillar we kind of calllike a follow-on investment.
As you know, startup foundersthey're, as you mentioned,
mostly engineers.
They're very good at reallygetting the product going, maybe
raise initial capital, but whenyou had to do next level of
capital or growth capital, youhad to be prepared.
So that's where we have a goodset of relationships with other
(08:33):
VC funds and even some of thecompanies you dealt with, we
invested, we were able tointroduce them to growth capital
funds, like it could be GoldmanSachs FTV Capital, some of the
funds, as you know, they deploy$40, $50 million in growth
capital.
Then the last one is thestrategic partnerships.
(08:54):
So there's four pillars wereally practice at DVC.
William (09:00):
Okay and kind of taking .
I guess I got a little bit of.
I mean, first of all, thank youfor that.
I think I got a little ahead ofmyself.
One thing I wanted to just sortof think through, like when a
founder, maybe a new timefounder, comes to DVC first time
maybe, what sort of like keyelements would a VC look for
(09:23):
like in a pitch from a founder?
And, I guess, can founders maketheir?
How would a founder make theirpitch stand out, you know, in
the crowded, you know thiscrowded market right now?
Dayakar (09:35):
Very good question.
I think like the first thingreally we look for, then I'll
talk about in general, I kind ofcall it three T's.
You know team total, available,market time and traction.
I'll talk about in general how,what you know, I kind of call
it three T's, you know teamtotal, available, market time
and traction.
So when I say team, the mostimportant thing for a VC, you
know because you know we want tomake sure, like a, you know,
(09:57):
the team, the way I kind of lookat you can change always horse,
but not the jockey, right, wewant to make sure the team is
the most uh, you know uh, jiveand from technology, a ceo and
also somebody able to sell.
I kind of call it three-leggedstool do they have, at least,
maybe they may not be able toget all three members right away
(10:19):
, but do they have an idea oncethey get some funding, will they
they be able to recruit, youknow, somebody to work with them
, because you know, as you know,startup takes a long, long time
and to make sure, like, theteam is able to jive together.
That's the number one thing,right?
So the second one is reallyalways, you know, did the
founder go through?
(10:40):
You know what the totalavailable market, the space
they're planning to go to.
They don't have it really.
You know we'll try to kind oftell them and give some ideas
how to do that research or getthat data back to them.
Then the traction you know, havethe thought through.
You know, especially, dependingon where you are, if you are
(11:02):
looking for angel investment orbasically what we call a tree
seed to seed, you may not haveany customers yet, but did you
think through?
So that's where really,depending on really where you
are in a life cycle, could beproduct definition all the way
to getting that early stage,what we're going to call design
(11:27):
partners.
Have you thought through designpartners?
And you know, make sure, likeyou get, you know what I'm going
to call a.
You know within your networkshould be able to find two or
three, you know potentialcustomers willing to give you
that feedback.
That early feedback is the mostimportant thing.
You want to validate whatyou're thinking.
(11:48):
So I think that team timetraction.
Then, of course, the technologyalso always people look at,
because most of the investmentreally in the you know, software
said, as you know it startedwith the technology.
You know, uh, have they builtit or did they think through
where they are on the account?
So I think then, pitching to youknow any angel investors or vcs
(12:12):
, you know you want to make sure, like, really prepare your
slide deck not more than 10slides, I kind of call if you
have more than 10 slides, youknow people get really get
really frustrated to go throughall these slides, right?
So if you want, like, we cansend you a slide deck you can
share with some of these.
You know, founders, I kind ofcall the first slide, you know
(12:34):
start with really problemstatement.
You know what problem are youtrying to solve.
And then a second one would belike how you would solve that
problem, and then a second onewould be like how you would
solve that problem.
So I will say, like you know,after you define the problem,
what are the solutions you'reoffering and the market size.
Educate your investor, becausemost of the time really, you
(12:59):
know we don't have all theknowledge, as a founder has the
area they are focusing.
Educating the investor, the oneof the most important thing.
And also, before going to thispitch, I would say, do some
research about the investor too.
It could be angel investor, youknow the angel especially.
Make sure, like they have someexpertise in that area, they can
(13:20):
help you right?
I mean, that's one thing I haveseen people think you know,
just as long as I get the money,you know I can go and build the
product, I can do everything.
But in the early stage, this soimportant getting that, uh,
angel investor who knows and canhelp you be a mentor.
There's so many good angelinvestors nowadays.
(13:41):
When I started my, I don'tthink we had that many people
really willing to work in thestartup area.
Now so many people have beensuccessful people or some of the
executives in large enterprises.
They're willing to be a mentor.
So I think I would say makesure you get a mentor.
So a few other slides.
I will say competition pricing.
(14:04):
Really, you want to make sureyou get thought through.
If you don't have all the ideas, it's okay.
You could ask investors alsowhat they think about the
pricing.
Vc even pre-series A, series A,you do have to have some you
(14:25):
know these things nailed a lotmore than early stage.
Then once you kind of hopefullyget funded people like us in
pre-series A and series A andthey can help you to get to what
I'm going to call a series Band hopefully to next level.
So I hope I answered the youwhat, what, what a founder
(14:46):
should prepare in their pitchdeck and also how they should
really, you know, educatethemselves before going to any
investors.
Eyvonne (14:57):
Yeah, that's great info and I think that constraining
the slide deck and requiringthem to make their message very
succinct and strongly suggestingthat is something I think we
all can learn from if we'repreparing content for anybody at
any level, at any level After afounder gives their pitch.
(15:25):
Can you talk a little bit aboutthe decision-making criteria
that you use to evaluate?
I know you talked about, youknow tech, tam and traction.
How do you take those focusareas and then map them onto a
presentation that you've seen?
Is there gut feel involved?
Are there metrics that you use?
How do you think about that?
Dayakar (15:42):
Sure, definitely, as I mentioned, the team is the most
important for us, right?
So when I meet any founder, Itell our team I can't really get
a gut feeling within half anhour, are they really able to
for a long time, because ittakes, you know, five to 10
(16:05):
years for any startup to havesome type of really you know
could be a conclusion you cancall like exit or really
whatever, right?
So I think that's what I try toget the gut feeling, then go to
the next level, right.
Get the gut feeling, then thengo to next level, right.
So we invest, as I mentioned,mainly very focused b2b software
(16:26):
companies right within that.
Also, we invest in the what wecan call infrastructure
companies like alkira, corestack and companies like a what
we did, like a in the cybersecurity space and all that.
So, with focus, we are able to,even before we take a pitch, we
have gone through pretty good alevel of really the company
(16:49):
technology.
So then now really deciding onthe team and with the traction,
so far, what they have made, isthe traction really what we're
gonna call like a, is aconcentrated or really they have
multiple customers?
The one thing we look for.
You know what I'm going to calllike really, you don't want to
(17:09):
put all you know eggs in onebasket.
Like you don't want to have onecustomer paying you know your
entire revenue, right.
One or two customers, ithappens in the beginning, but
have they expanded?
You know customer base right.
One or two customers, ithappens in the beginning, but
have they expanded?
You know customer base right.
So because we are looking atthe companies already have some,
you know traction I mentionedhave close to half a million to
(17:33):
a million dollar, you knowannual recurring revenue.
With that they should be ableto have at least, you know,
depending on the company andwhat type of product they're
selling.
But at least they look at youknow they have 30, 40 000 per
customer revenue, right.
So with that uh, you know thatgives a good validation.
This sec.
(17:53):
The third one, I would say likea uh, within that customer base,
have they landed and expanded?
If the company even started$5,000, we are okay with it.
But you know that gives you anidea customers really using the
product.
You know it's kind of funny.
That day I was talking to oneof the CTOs of a company.
(18:14):
I was asking him about the AI.
He said there are a lot ofpilots out there but not many
passengers yet, you know right.
So and other end users usingthe product.
If you don't have the end userusing it, the company is not
going to expand.
Especially in the B2B SaaS,most of the revenue comes,
(18:35):
really, it could be user-basedor it could be transaction-based
revenues.
So if you are priced by userbase, that means you want to
make sure, like, expand, youknow number of users using a
product.
So those two things really kindof gives us a good you know
idea with the companies rightnow.
Uh, so you know, then of coursewe also kind of look at can we
(18:57):
also, uh, get other coin westwith us?
Us, we do lead the rounds.
Basically, check sizes are $2-5million in pre-series A and
series A.
But we like to get one or twoother investors.
Are they really willing toco-invest with us?
(19:18):
Even the founder may have somepeople already.
Or we also try to bring otherco-investors with us.
You know, even the founder mayhave some people already.
Or we also try to bring otheryou know co-investors with us
into the you know this.
This round of financing.
Our timeline is what we kind ofhave a goal uh, touch to turn
sheets.
William (19:31):
We would like to get it done within three months you
know that you brought up kind ofa point of.
Well, I guess got me curiousabout another question and
something I get get somequestions about sometimes.
But you know, a VC fund doesn'tjust magically appear and
populate itself.
What role does a like a limitedpartner, like an LP, play in a
(19:55):
fund, you know, versus kind oflike what a general partner
plays?
Dayakar (20:00):
Got it, got it.
So, as you know, vc funds justto mention limited partners are
investors.
Most of the limited partnersare silent investors.
They're not involved in a fundday to day.
General partner think of like aCEO running a company.
General partner think of like aCEO running a company,
(20:22):
basically responsible forsourcing.
The way I kind of look at it,there are three S's.
A limited partner look in a fundlike ours.
One is how we are sourcing, howwe are selecting, what our
stewardship is.
The stewardship is nothing butwhat I talked about, or DVC
(20:46):
advantage.
You know sourcing, selectionand stewardship.
You know how these funds aremaking progress, how they have
done.
That's the way the LP shouldlook at it.
So, limited partners you knowthey invest anywhere depending
on the fund.
You know there are limitedpartners could be individuals,
high net worth individuals whohave exited a company or maybe
an executive company.
They could also invest inventure funds.
(21:08):
Then the family offices couldbe limited partners.
Then the third or fourth I kindof call institutions what are
you going to call?
Almost like some of them, youknow, like a California
retirements.
You know.
Teachers fund right, you know.
And the Texas teachers fund.
They also invest in VC fundsbecause they want to allocate
(21:29):
their capital into differentbuckets.
You know it could be hedgefunds or real estate, some into
the VC funds also right.
Then there are funds totallyset up as a fund of funds People
really they invest in VC fundslike ours.
They have, you know, experiencereally running a VC fund already
(21:50):
or maybe they were a part of alarge institution, like it could
be Stanford or really Harvard,you know they basically they're
all my funds.
So those are the LPs.
The GPs are usually people likeme who are coming from a
(22:13):
background of really starting acompany, learned a lot and
hopefully able to invest theirown money and able to raise
capital because money and ableto raise capital because you
also had to raise capital fromother people.
People also come from theinvestment banking backgrounds.
People worked in different bigbanks and helped basically
(22:38):
fundraising for other startupcompanies or bigger companies,
basically fundraising for otherstartup companies or bigger
companies.
Then other people also comewhere they have done a pretty
good job as a product manager,really a good sales leader in
bigger firms.
They also join as GPs.
But then there are other peoplealso could be where they joined
(23:06):
a venture fund, as an analyst,grown in the venture fund as an
associate, then they will alsoleave and start a venture fund.
So that's the way the GPs come.
The LPs are I've kind ofmentioned four or five buckets.
The GPs could be coming fromthree or four different areas.
William (23:25):
Okay, and so this kind of I eventually want to pivot to
sort of how employees of astartup should think about
equity and compensation.
But I have one last question on, I guess, just the funding and
investment cycle.
So as startups grow and theybegin to scale, there's likely
(23:45):
going to be some sort ofsubsequent funding rounds and
when this happens, additionalshares get issued, which causes
dilution of ownership to someextent for existing shareholders
within a company, for existingshareholders within a company.
Is that something that maybe apotential employee that's going
(24:08):
to look at a startup to maybework there, that they should
understand, and can you kind ofgive a brief explanation of what
this means, both in the contextof the founders and the team
that's running the company, andalso it also impacts VCs as well
.
They have to think about thiswhen they go to invest as well.
Dayakar (24:28):
It's a really important question.
So if you look at it like that,you know I always tell people,
you know, if you don't have todo fundraising, you should not
do it.
You know we would rather.
Really you can grow the companykeeping most of the equity for
yourself.
But in technology side it'spretty hard because technology
is changing so fast.
(24:48):
You need to move fast, as youknow.
Really, if you look at topeight companies in the world all
venture-funded companies if youlook at Amazon's of the world,
google's of the world every oneof them they did a great job, so
able to basically grow thecompany faster.
(25:10):
That's the reason really youwant to raise funding.
So with that, I would say, whenventure funds come and invest,
you want to make sure as afounder, you had to know how
much dilution you're going totake.
You're going to take somedilution, but you had to be very
clear what the dilution will be.
(25:31):
The more traction you get inthe early stage, the less
dilution you take.
Because when venture funds arecoming in, they look at what
kind of risk they are taking.
And if the company, as Imentioned in those two T's, when
venture funds are coming in,they look at what kind of risk
they are taking and if thecompany, as I mentioned in those
two T's one of the traction, ifthey have a pretty good
traction, they got a bettervaluation right, depending on
(25:52):
the revenue and all that.
So that's the number one thingis the founder should focus and
try to get the traction beforego to a lot of funding.
Try to go to friends, family,angel investors, get the product
market fit PMF as quickly aspossible with some good
(26:12):
customers and revenue.
That makes a big difference.
So I would say, really, initialfundraising.
When you go for series and allthat, the rule of thumb is maybe
you give up 30% of equity,right, you're still keeping 70%
for founders and also to youremployees and all that.
(26:35):
You do want to create anenvironment where not only you
as a founder you shoulddefinitely benefit because
you're the one started, ourfounders, I should say but same
time, you want your team to feelalso have skin in the game From
the day one.
You want to make sure, like thesetup, at least 20% of your
(26:55):
equity for employees.
If we you know we never like toinvest in a company they're not
thinking about their employees,right?
And ecosystem players too, andI talked about, really, these
advisors and mentors.
You know you can't afford topay them.
You know they cost a lot ofmoney if you had to pay, but if
you can give them some equity,they also will help you.
(27:16):
They feel that they have skinin the game, right.
So that's it.
From that 20 pool, you canreally take care of your
employees.
Uh, that that should bereplenished.
You know.
Whenever you do next tofundraising too, by the way,
right, initially you will begiving up maybe five, ten
percent.
Then, when you want to hire agood vp of sales, you may have
to give up some more equity toyou know those employees.
(27:39):
So I think, really, you know, uh, for me, you know, successful
companies have done a great job.
Uh, sometime, unfortunately,founders think you know, hey, I
know the whole pie for me ismore than really.
Instead of owning a small pie,I would rather own a small piece
(28:00):
of big pie, and that's the wayI look at it.
Even my own company we raisedcapital and $3 million revenue.
Until that we did not gooutside at all.
So, only from angels and allthat.
But sometimes, when you arereally going into some of the
stuff that's happening in the AIspace.
As you know, it requires a lotof money.
(28:22):
You know, really, you reallyneed that capital just to run
the infrastructure and the AImodels.
Right now, it costs a lot ofmoney.
I'm pretty sure you've beenhearing how much OpenAI spent
really for them to get the model.
You know where they are today,right, so I think that,
depending on what you're workingon but the beauty of really,
I'm pretty sure you know you'vebeen working on the cloud, the
(28:44):
cloud you can start a companynowadays with $500 in a bank and
get an account on Amazon.
Get started.
Then, really, you know, ofcourse, eventually you have to
get good funding for you to grow, for you to grow.
So I think you know.
To answer your question, I hopereally I told you, like the
founder need to make sure, like,get some advice in the
(29:07):
beginning itself how they reallyget diluted each stage in a
series A, b, c, but I would likethe founders to own, when the
company exiting, a pretty goodchunk of the company.
We want to make sure, like thefounders get the most benefit
than, of course, the employees,of course, the investors too.
William (29:26):
That's really good information.
I appreciate that, and I guesswe don't have too much time left
, probably.
But one thing I really wantedto discuss is Just thinking.
You know, if you're an employeeand this is something that
Yvonne and I both are reallyinterested in is understanding
equity.
So, if you think about, likemany, many top engineers out
(29:49):
there will give up a lot of basesalary in favor of you know
some founder stock or good,maybe like a restricted stock
options plan, and you know, youknow, when they go and work for
a startup, and I know a fewcommon, you know a few of the
common types of options, likeincentive stocks options and
(30:10):
like non-qualified stock options, or even, like you know, rsu's,
you know restricted, you knowstock options.
Um, what, what should, I guess,what should a employee that's
seeking to go and work for astartup understand about how
these work and also when theynegotiate?
Because what I see a lot oftimes is, you know, engineers or
(30:31):
new timers are just confusedabout this and they're actually
afraid to ask questions andthey're going out and they're
looking on the Internet andthere's just so much out there.
So, like, I guess, just tryingto boil it down to a, down to as
simple as possible answer, ifit's even possible.
Dayakar (30:47):
Sure, sure, you're exactly right.
It's kind of funny.
My own company I remember mostof these young engineers and I
was also young at that timedidn't understand much about the
stock options and I learned.
Some didn't understand muchabout the stock options and I
learned some.
Then when I used to give stockoptions, most of the time they
(31:07):
never understood hey, no, no, Idon't want any stock option, I
want my salary increase themsome of them they used to have,
like you know, I want to get tomy uh number.
They have.
But I'm glad to see some ofthese employees benefited a lot,
were able to buy an apartmentor a house when we exited our
company.
That made me feel goodsatisfaction as a founder, a CEO
(31:30):
of the company.
It's really important whenyou're giving up a good job in a
bigger company where the bigcompanies also nowadays they
give you know basically stockgrants and those stocks you get
from a company like Microsoftand all that.
They're liquid, also right.
(31:51):
You know once you get it, youknow within one year or so you
can sell it and make you knowsome.
You know at least to use thatmoney for buying a house or
something right.
But when you're joining astartup.
It's a long, long journey, youknow you don't know when are you
actually going to make thatmoney.
So that's one thing you had toget to your head.
You are here for a long timetoo, but good news is I'll tell
(32:12):
you there are some optionsavailable for some of these
employees.
When I started it was not there.
You know that time, once youjoin a company until the company
exits, you don't have any exitplan at all.
So you want to make sure, like,understand how many actually
(32:34):
stocks the company has, right,what are you getting?
Point zero, one percent.
Are you getting one percent ofthe company through your
employee stock options?
Just number one, right, and uh,most of the time, really, the
good news is, uh, um, the stockoption grant, the price is lower
than the actual price.
Really, the common, uh, youknow, uh, other investors are
paying, so usually you get astrike price which should be a
(32:57):
lower than really.
You know what, what the priceis going for, and that's where
it makes a difference, where.
But they had to make sure youknow, understand the tax
implications.
Also, they need to consulttheir CPA if they're getting a
lot of stock at lower price andthey're going to exercise it and
(33:19):
there are some implications.
Until you exercise, there areno problem, but once you
exercise, there are some.
You know you exercise, thereare no problem, but once you
exercise, there are some taximplications.
They need to consider.
So again, how many stock grantsyou are getting and how the
vesting happens.
Is it a vesting?
Most of the time it's afour-year vesting.
Most of the startups do,because you want to make sure
(33:41):
both sides are giving the timeto make sure both sides are
giving their time to make surethe company grows.
So, with that investing, then,what the strike price is and do
you want to exercise thoseoptions once you're able to
exercise, once you exercise?
Nowadays there are also optionsavailable when the company is
(34:05):
raising next level of capital.
You should be able to tell theCEO or the founders hey, when
you're raising next level ofcapital, I would also like to
take some chips off the table.
That's happening right now,before it never used to happen.
Even founders right now beforeit never used to happen even
founders, even initial angelinvestors, are taking some chips
(34:26):
for the table when they'redoing a series B, a series C
fundraising.
So you should be educated andyou talk to, you know your CEO,
who it is, don't be afraid of.
Hey, I would like to take somechips for the table if you, if
you need it, if you need thecash, if you don't need it, if
you believe in the company, andgo for it.
But it's always better to takesome chips for the table.
I always encourage nowadayswhen the founders because you've
(34:50):
been working, you know, withthe shoe strings and really
taking less salary, you know youdo need, you know to make sure
you can take care of your family, so you, you want to make sure,
like you, get some cash out.
So so I think those are thegood.
You know, at least reallyevolving stuff is happening in
the venture world.
It was not there before.
Eyvonne (35:11):
Yeah.
So let's say somebody islooking at a role in a in a in a
startup and they they take some, some shares, and is there a
mechanism for them to sell thoseshares before exit or before
(35:33):
the org goes public?
Is there a way to exercise thatcapital as an employee for a
privately held company?
Dayakar (35:44):
Yeah, as I mentioned before, we did not have that
many options.
But now, as I mentioned, whenthe company is doing next level
of fundraising, the Series Binvestor sometimes what they do,
what they call they're buyingprimary shares and they're also
buying what they call secondaryshares.
(36:06):
The secondary shares arenothing but really employee
shares or angel investor sharesand you know you could.
You know you don't need to sellall of your shares, but you
could sell some of it becausethey're, you know, the founder
or CEO want to make sureeverybody gets an opportunity to
sell some of the shares.
(36:27):
You may get some allocation too.
Then, if the company progressesvery well into Series D and all
that plan to go public.
Nowadays there are someplatforms available.
People are coming and buyingemployee stock actually and what
they call a pre IPO stock.
(36:47):
That's also available nowadays.
You know, you see, like someeven I saw, like right now some
of these companies like OpenAIand all that they're not public,
some employees already sellingand people like us we could go
and buy in open market.
It's not a public market, butthere are systems set up like
that you can go and buy them.
Eyvonne (37:09):
I would imagine if you have pre-IPO shares and you
believe in the company, then youwould have to think very
carefully about whether or notyou wanted to sell those pre-IPO
, because if people are wantingto pick them up, it's likely
people believe that it will bemore valuable after IPO, right?
So you'd have to think long andhard about whether or not the
(37:31):
cash now is worth it and whatthat risk calculation is
post-IPO right, and that's aninteresting calculation, I would
think.
Dayakar (37:43):
I agree with you.
I think that's depending on Ialways tell people you know,
like right, you know, especiallyif you're a young end dollar,
if you believe in it, keep it.
You know, you know the companymore than anybody else.
Right, why you want to sell it,right, so you know.
But no same time again, there'snothing wrong.
Really, I did not.
(38:04):
Do not do be honest with you.
When I raised capital, uh, wewon 80 of the company and the
investors who are coming in.
They asked us you know, do youwant to sell some of your equity
?
I was like no, no, I don't wantto do it, you know.
But it's always good to takesome chips on the table.
William (38:15):
I'm not selling, saying all of it, but they should,
they should think about somesome, you know, cash out, you
know what about like, uh, so youcan, you can like exercise, so
exercising is like a multi-partprocess, but you can, you know,
exercise options early sometimesand you know, for the audience,
(38:36):
this just means purchasing yourstock options before they're
maybe I think it's beforethey're vested um, at time when,
like your, your strike priceand, I guess, like the fair
market value, are closertogether.
You know, to avoid, you know,getting just obliterated with
taxes.
Am I saying that correctly?
Dayakar (38:57):
I think, william, most of the time you can can't
exercise options until they'revested.
Once they're vested you have anoption you buy it, not buy it.
Usually you have the company'sstock option plan.
It is clearly one thing youwant to make sure read the stock
option plan when somebody givesyou.
(39:17):
It should detail everythingright how long you can keep,
even if you leave the company,how long you can keep those
stock granted.
You know vesting happens.
So I would also recommend youknow request your manager or CEO
.
You know stock should be all ofthe stock should be vested
(39:37):
sometime really and some goalsalso, not only the timeline but
also you can set up goals tooand they should be vested or
really the company is sold.
You should make sure all youroptions get vested.
So I would not recommend reallyany company.
Anyway, the company cannotreally let you buy your equity
(40:04):
unless they are vested.
But once they are vested, thestrike price you had to look at
depends on really you know thecompany.
You know right, like what doyou think if the company is
going to get acquired?
You want to make sure likereally at least the stock
options, really the shares youare buying once you acquire
(40:26):
those are your shares.
If you keep for one year, morethan one year, then you pay a
long-term capital gains, right?
If you really you know if thecompany is going to get acquired
within a few months, thenyou'll be paying, you know, like
a regular, ordinary income tax.
So you need to look at, really,you know again, depending on
you know which company you arein, you know you want to
(40:49):
exercise those, you know stockoptions, all right, yeah.
William (40:51):
I guess it makes a lot of sense, you know, to not see
yourself as a financial advisorand you know be read up on the
Internet, but having a realfinancial advisor in these
situations is highly highlyrecommended.
Dayakar (41:05):
Yes, I would say yes, yes, yes it is.
It is Sometimes, as you know,like I don't know.
This is when my first companythis is in 99, 2000, when they
had a dot-com bust happen.
Unfortunately, a lot of theseemployees, you know they hit by
(41:28):
so much of stock.
You know it was a big crisis.
I don't know if you remember ornot, maybe you're young it was
a big crisis.
William (41:33):
One last thing that just popped into my mind, you
know just kind of from your lastanswer a little bit was so
we've been talking about, we'vetalked about startup exits, just
a little bit, and you weretalking about, like acquisition
Is there?
I mean, there's certain, like Iimagine, profiles of companies
that are suited for IPO versusnot.
(41:54):
What indicators might a startupsee or experience, you know,
that make it a good fit to IP?
Dayakar (42:03):
Yeah, I think, really you know.
It's all I talked about, thethree T's, right, you know,
especially, is the team also hasexpertise or will they be able
to go and get good CFO?
There's one thing in my owncompany we are planning to go
public.
We went ahead and a good CFO.
So the team needs to have acombination.
(42:27):
Going IPO is very, veryexpensive and it is really very
taxing for the company becausenow, every month you had to
produce results.
Every quarter you had toproduce results, otherwise the
market is not going to like you.
So that's one thing that youhad to make sure you're ready
for for that stuff, right?
(42:48):
Number two is, really, you know, it's all depending on really
the market size, right, you, youwant to make sure you know, uh,
this company goes ipo, you know, is it 100, 200, 300 million
dollar revenue it can generateby itself, right?
Or, you know, does the team hasexpertise to go and acquire
other companies once they gotIPO, for them to get to the 300,
(43:11):
400 million dollar revenue,right?
So if you look at, I thinkthere's a number, I think almost
95, 97% of companies getacquired right and versus going
IPO, especially nowadays, right,like, really you know, of
companies get acquired right andversus going IPO it's failing
nowadays right, like really, youknow most of these acquisitions
also happen less than $300million.
So I think you know there'snumbers out there you want to
(43:34):
make sure you know, depending onyou know where you are, you
know the product and also theteam, the traction you got.
If you can really prove thosethree things, really you should
be able to prepare for yourselffor IPO.
But otherwise you should alwayslook at how you could be a
(43:59):
major role played in a biggerplatform.
A major role, you know, played,uh, in a bigger platform.
Right, there are really that's.
That's where I tell most of thefounders start really kind of
who I hate to say, but almostlike a you know um, dating these
bigger companies.
Uh, you know, while you knowyou're building the product.
(44:19):
You know, for me I wasfortunate enough to work with
Microsoft and other companieswhile I'm selling my product.
So, right, you know they shouldbecome your kind of what I kind
of call a sell-with or asell-through partners.
Their sales team is sellingtheir product team.
Really, knowing your product,it makes a huge difference.
You know it's a lot easier whenyou're looking at exit when the
(44:44):
product team makes to theircorporate development team
saying, hey, we do need thisproduct, versus you going
through the cartel.
So I think my advice tofounders always look at what are
the best path for you and theemployees and your investors.
Trey Lockerbie.
William (45:02):
Gotcha, thank you, that's, and your investors,
gotcha, thank you.
That's great advice, greatguidance.
We're definitely at time.
We used, I think, the wholeblock, so I guess this is where
it ends and I just want to thankyou.
So thank you for being sogiving with your time, and I
(45:26):
guess do you have anywhere onthe internet that you post or do
anything like linkedin ortwitter or any of the social
platforms?
Dayakar (45:32):
mainly linkedin.
I would say like I'm not oninstagram or anything like that,
but I am.
But I don't think I post a lotof instagram, but on linkedin I
do post, you know, uh, some ofmy thoughts and you know, and
especially some of it is ontechnology, and also I post a
lot about our portfoliocompanies because they are the
one really doing actual work, soI like to promote them and the
(45:55):
founders.
You know.
You know, I don't know if youhave seen or not, but we post a
lot about Alkira and lately,some of the investments we have
done in a company called Dice.
So we've been doing a lot ofkind of really, why would you
invest in a company also andtheir company making any product
(46:15):
announcements or any othermajor partnership they have done
?
But I do post my own.
Really I'll be, you know,hopefully able to give you other
good news.
You know I'm, uh, hopefully,finishing up a book actually
right now and it's kind ofalmost what the questions you
asked about it I'll be able tosend you once the book is done.
(46:36):
So I'll be posting some moregreat.
William (46:39):
Yeah, I don't know the timing on that, but I think, uh,
we have a few episodes that aregoing to be launching before
this one, so maybe we could timeit with the publishing of the
book.
I don't know if it would workout, but we can discuss the
logistics, sure.
Dayakar (46:54):
Thank you again, both of you taking your time and
really enjoyed your questions,especially pertinent to founders
and also employees.
Very, very thoughtful what youthought about it, Thank you.
You know, always we think aboutfounders, but really you guys
really thought about employeesis very, very important.
Dayakar Puskar is the founder and managing director of
Dallas Venture Capital.
A serial entrepreneur turnedvisionary investor, dayakar
launched one of the firsttech-focused venture funds,
investing in groundbreakingearly-stage startups in cloud,
ai, ml and mobile technologies.
In this conversation, wediscuss Dayakar's venture
journey, how startups get funded, how equity works, startup exit
(00:24):
strategies and much more.
William (00:38):
Hello and welcome to another episode of the Cloud
Gambit.
This is going to be an episodewhere we're kind of going down a
different sort of a differentpath, um, with a few different
areas, and um, for that I have aspecial guest, someone that is
an expert, um in these areas.
So, um, if you wouldn't mindintroducing yourself, lady
(01:01):
carter sure, sure, my name?
Dayakar (01:03):
My name is Daya Akarpuskur.
I'm founder and managingdirector at Dallas Venture
Capital.
And my background I started myfirst job at Motorola for 10
years.
That was then, after that,started a company here, a
company called JP Mobile focusedon mobile messaging software.
And that company in 2000, weraised a bunch of money and
(01:25):
planned to go public.
Then that never happened, didnot go public, but then we were
able to merge that company witha company called GoTechnology.
Then it was acquired byMotorola.
I had a short stint atMicrosoft After that.
Then I started a venture fundused to be called Naya Ventures
in 2012.
(01:46):
Then 2021, we changed the nameto Dallas Venture Capital.
So now our fund has grown,first fund to now the latest
fund, close to $150 million inAEM assets under the main
mentality now.
William (02:08):
Awesome.
So first of all, I just want tosay thank you for your time,
thank you for joining and I'mreally glad we could get this
together and make it happen.
You know, I believe both of us.
I think we happen to be on arooftop eating dinner in dallas
and I was talking to one of youradvisors just about the
challenges for new technologiststhat are new engineers that are
(02:28):
kind of going into the startupspace with just understanding
the equity component of it,understanding how venture
capital works at a high level.
A lot of those.
There's a lot ofmisunderstandings and just not
knowing.
So I think this will be a goodconversation.
We can kind of dig down into afew of those areas.
(02:51):
Thinking about venture capital,it's much sort of beyond
funding and that goes into howVCs support founders.
Every founder at some point wasa first-time founder and many
were actually engineers.
So how does Dallas VentureCapital sort of support founders
(03:13):
and provide value, like, say,mentorship or strategic guidance
or whatever, to just make abigger impact and drive success
for founders and for thestartups?
Sure, william, one thing Iwanted to say to just make a
bigger impact and drive successfor founders and for the
startups.
Dayakar (03:26):
Sure, william, one thing I wanted to say congrats.
Looks like you've been doingfor a podcast for one year.
Right now Looks like you'recoming up in August.
I listened to some of them.
I've done a great job with someof the founders.
I listened to a few things.
I learned a lot what kind ofquestions you asked and really
how other people were able toprovide good information.
(03:47):
So it seems like really it's agood session for me to kind of
express what we do at DallasVenture Capital.
So, as I mentioned, I became anengineer, as you mentioned, then
became a founder, then reallydecided to go into venture.
So a lot of people ask me whydid you go into venture from a
(04:13):
founder?
So I felt really I learned alot from my early days.
We'll talk about how I haveraised capital and all that, but
from those learnings I feltventure capital is one of the
best asset class If you look ata financial stack to really if
(04:37):
you want to contribute and also,same time, learn.
I really feel like I learnevery day from these founders,
from ecosystem players.
So with that, really, butfocused in a b2b software, you
know, uh, venture fund and beingin dallas, uh, and coming from
(04:58):
uh, as I mentioned, like with mytechnology and operational
background, we want to make sure, like we add a value.
All most of the vcs do a greatjob in my opinion, but we want
to make sure, like what we sayreally, you know, show in
results.
To do that one, we have createda within our venture fund.
(05:19):
Usually most of the funds callusually most of the funds call
portfolio growth.
We created what we call aDallas Venture Capital DVC
advantage.
Dvc advantage is nothing butreally how do we help our
portfolio companies, once theyhave product market fit or some
(05:40):
traction, take them from that $1million to $10 million revenue?
How do we help them to do thatone?
We actually created a uh withinthis dvc advantage.
You can call we have fourpillars.
First pillar is really the mostimportant pillar how do we help
them?
And the go-to-market strategy,business development and sales
(06:02):
as the biggest problem.
I have seen a lot of startupsface like I faced.
I went through almost seven VPof sales until we find the right
salesperson.
So that's where really Ithought we can add most value,
but not just saying it.
We created, even though we're asmall fund, we have three
(06:24):
full-time partners working onhow do we help out these
portfolio companies Mostly theyare coming from operational
business development backgroundsand using our own network of
advisors and investors.
We were able to have a goal toclose at least two customers for
(06:45):
a portfolio company, and notonly closing two deals, but also
how do we get them close to onemillion dollar annual recurring
revenue.
As you know, like that day whenyou met us, we had three or
four of our advisors, you know,trying to talk to our portfolio
company sales team, what kind ofhurdles they're facing, how we
(07:06):
can help them right.
So that's, I think, really thefirst pillar.
Second pillar is how do we helpthem hiring, uh, mainly on the
sales and financial side.
Uh, one of the major problem Ihave seen, uh, startups, you
know, have a hard timerecruiting good sales leaders
Because really, sales leaderscome with a what I call a wolf
(07:28):
pack.
They come with their team andthey had to make sure, like,
execute what they need.
So to hire that kind of a salesleader, until they get to
series B and C, you will not beable to, you know, afford to
hire those sales people.
(07:48):
To be honest, I think that'swhat really we feel like you
know, using our Rolodex and ournetwork, how we can deploy this
CROs, and we have done with afew of our companies.
For example, coreai CoreStack,we were able to actually help
them.
A VPF channel, a customersuccess officer it made a big
(08:09):
difference for the company.
The third pillar we kind of calllike a follow-on investment.
As you know, startup foundersthey're, as you mentioned,
mostly engineers.
They're very good at reallygetting the product going, maybe
raise initial capital, but whenyou had to do next level of
capital or growth capital, youhad to be prepared.
So that's where we have a goodset of relationships with other
(08:33):
VC funds and even some of thecompanies you dealt with, we
invested, we were able tointroduce them to growth capital
funds, like it could be GoldmanSachs FTV Capital, some of the
funds, as you know, they deploy$40, $50 million in growth
capital.
Then the last one is thestrategic partnerships.
(08:54):
So there's four pillars wereally practice at DVC.
William (09:00):
Okay and kind of taking .
I guess I got a little bit of.
I mean, first of all, thank youfor that.
I think I got a little ahead ofmyself.
One thing I wanted to just sortof think through, like when a
founder, maybe a new timefounder, comes to DVC first time
maybe, what sort of like keyelements would a VC look for
(09:23):
like in a pitch from a founder?
And, I guess, can founders maketheir?
How would a founder make theirpitch stand out, you know, in
the crowded, you know thiscrowded market right now?
Dayakar (09:35):
Very good question.
I think like the first thingreally we look for, then I'll
talk about in general, I kind ofcall it three T's.
You know team total, available,market time and traction.
I'll talk about in general how,what you know, I kind of call
it three T's, you know teamtotal, available, market time
and traction.
So when I say team, the mostimportant thing for a VC, you
know because you know we want tomake sure, like a, you know,
(09:57):
the team, the way I kind of lookat you can change always horse,
but not the jockey, right, wewant to make sure the team is
the most uh, you know uh, jiveand from technology, a ceo and
also somebody able to sell.
I kind of call it three-leggedstool do they have, at least,
maybe they may not be able toget all three members right away
(10:19):
, but do they have an idea oncethey get some funding, will they
they be able to recruit, youknow, somebody to work with them
, because you know, as you know,startup takes a long, long time
and to make sure, like, theteam is able to jive together.
That's the number one thing,right?
So the second one is reallyalways, you know, did the
founder go through?
(10:40):
You know what the totalavailable market, the space
they're planning to go to.
They don't have it really.
You know we'll try to kind oftell them and give some ideas
how to do that research or getthat data back to them.
Then the traction you know, havethe thought through.
You know, especially, dependingon where you are, if you are
(11:02):
looking for angel investment orbasically what we call a tree
seed to seed, you may not haveany customers yet, but did you
think through?
So that's where really,depending on really where you
are in a life cycle, could beproduct definition all the way
to getting that early stage,what we're going to call design
(11:27):
partners.
Have you thought through designpartners?
And you know, make sure, likeyou get, you know what I'm going
to call a.
You know within your networkshould be able to find two or
three, you know potentialcustomers willing to give you
that feedback.
That early feedback is the mostimportant thing.
You want to validate whatyou're thinking.
(11:48):
So I think that team timetraction.
Then, of course, the technologyalso always people look at,
because most of the investmentreally in the you know, software
said, as you know it startedwith the technology.
You know, uh, have they builtit or did they think through
where they are on the account?
So I think then, pitching to youknow any angel investors or vcs
(12:12):
, you know you want to make sure, like, really prepare your
slide deck not more than 10slides, I kind of call if you
have more than 10 slides, youknow people get really get
really frustrated to go throughall these slides, right?
So if you want, like, we cansend you a slide deck you can
share with some of these.
You know, founders, I kind ofcall the first slide, you know
(12:34):
start with really problemstatement.
You know what problem are youtrying to solve.
And then a second one would belike how you would solve that
problem, and then a second onewould be like how you would
solve that problem.
So I will say, like you know,after you define the problem,
what are the solutions you'reoffering and the market size.
Educate your investor, becausemost of the time really, you
(12:59):
know we don't have all theknowledge, as a founder has the
area they are focusing.
Educating the investor, the oneof the most important thing.
And also, before going to thispitch, I would say, do some
research about the investor too.
It could be angel investor, youknow the angel especially.
Make sure, like they have someexpertise in that area, they can
(13:20):
help you right?
I mean, that's one thing I haveseen people think you know,
just as long as I get the money,you know I can go and build the
product, I can do everything.
But in the early stage, this soimportant getting that, uh,
angel investor who knows and canhelp you be a mentor.
There's so many good angelinvestors nowadays.
(13:41):
When I started my, I don'tthink we had that many people
really willing to work in thestartup area.
Now so many people have beensuccessful people or some of the
executives in large enterprises.
They're willing to be a mentor.
So I think I would say makesure you get a mentor.
So a few other slides.
I will say competition pricing.
(14:04):
Really, you want to make sureyou get thought through.
If you don't have all the ideas, it's okay.
You could ask investors alsowhat they think about the
pricing.
Vc even pre-series A, series A,you do have to have some you
(14:25):
know these things nailed a lotmore than early stage.
Then once you kind of hopefullyget funded people like us in
pre-series A and series A andthey can help you to get to what
I'm going to call a series Band hopefully to next level.
So I hope I answered the youwhat, what, what a founder
(14:46):
should prepare in their pitchdeck and also how they should
really, you know, educatethemselves before going to any
investors.
Eyvonne (14:57):
Yeah, that's great info and I think that constraining
the slide deck and requiringthem to make their message very
succinct and strongly suggestingthat is something I think we
all can learn from if we'repreparing content for anybody at
any level, at any level After afounder gives their pitch.
(15:25):
Can you talk a little bit aboutthe decision-making criteria
that you use to evaluate?
I know you talked about, youknow tech, tam and traction.
How do you take those focusareas and then map them onto a
presentation that you've seen?
Is there gut feel involved?
Are there metrics that you use?
How do you think about that?
Dayakar (15:42):
Sure, definitely, as I mentioned, the team is the most
important for us, right?
So when I meet any founder, Itell our team I can't really get
a gut feeling within half anhour, are they really able to
for a long time, because ittakes, you know, five to 10
(16:05):
years for any startup to havesome type of really you know
could be a conclusion you cancall like exit or really
whatever, right?
So I think that's what I try toget the gut feeling, then go to
the next level, right.
Get the gut feeling, then thengo to next level, right.
So we invest, as I mentioned,mainly very focused b2b software
(16:26):
companies right within that.
Also, we invest in the what wecan call infrastructure
companies like alkira, corestack and companies like a what
we did, like a in the cybersecurity space and all that.
So, with focus, we are able to,even before we take a pitch, we
have gone through pretty good alevel of really the company
(16:49):
technology.
So then now really deciding onthe team and with the traction,
so far, what they have made, isthe traction really what we're
gonna call like a, is aconcentrated or really they have
multiple customers?
The one thing we look for.
You know what I'm going to calllike really, you don't want to
(17:09):
put all you know eggs in onebasket.
Like you don't want to have onecustomer paying you know your
entire revenue, right.
One or two customers, ithappens in the beginning, but
have they expanded?
You know customer base right.
One or two customers, ithappens in the beginning, but
have they expanded?
You know customer base right.
So because we are looking atthe companies already have some,
you know traction I mentionedhave close to half a million to
(17:33):
a million dollar, you knowannual recurring revenue.
With that they should be ableto have at least, you know,
depending on the company andwhat type of product they're
selling.
But at least they look at youknow they have 30, 40 000 per
customer revenue, right.
So with that uh, you know thatgives a good validation.
This sec.
(17:53):
The third one, I would say likea uh, within that customer base,
have they landed and expanded?
If the company even started$5,000, we are okay with it.
But you know that gives you anidea customers really using the
product.
You know it's kind of funny.
That day I was talking to oneof the CTOs of a company.
(18:14):
I was asking him about the AI.
He said there are a lot ofpilots out there but not many
passengers yet, you know right.
So and other end users usingthe product.
If you don't have the end userusing it, the company is not
going to expand.
Especially in the B2B SaaS,most of the revenue comes,
(18:35):
really, it could be user-basedor it could be transaction-based
revenues.
So if you are priced by userbase, that means you want to
make sure, like, expand, youknow number of users using a
product.
So those two things really kindof gives us a good you know
idea with the companies rightnow.
Uh, so you know, then of coursewe also kind of look at can we
(18:57):
also, uh, get other coin westwith us?
Us, we do lead the rounds.
Basically, check sizes are $2-5million in pre-series A and
series A.
But we like to get one or twoother investors.
Are they really willing toco-invest with us?
(19:18):
Even the founder may have somepeople already.
Or we also try to bring otherco-investors with us.
You know, even the founder mayhave some people already.
Or we also try to bring otheryou know co-investors with us
into the you know this.
This round of financing.
Our timeline is what we kind ofhave a goal uh, touch to turn
sheets.
William (19:31):
We would like to get it done within three months you
know that you brought up kind ofa point of.
Well, I guess got me curiousabout another question and
something I get get somequestions about sometimes.
But you know, a VC fund doesn'tjust magically appear and
populate itself.
What role does a like a limitedpartner, like an LP, play in a
(19:55):
fund, you know, versus kind oflike what a general partner
plays?
Dayakar (20:00):
Got it, got it.
So, as you know, vc funds justto mention limited partners are
investors.
Most of the limited partnersare silent investors.
They're not involved in a fundday to day.
General partner think of like aCEO running a company.
General partner think of like aCEO running a company,
(20:22):
basically responsible forsourcing.
The way I kind of look at it,there are three S's.
A limited partner look in a fundlike ours.
One is how we are sourcing, howwe are selecting, what our
stewardship is.
The stewardship is nothing butwhat I talked about, or DVC
(20:46):
advantage.
You know sourcing, selectionand stewardship.
You know how these funds aremaking progress, how they have
done.
That's the way the LP shouldlook at it.
So, limited partners you knowthey invest anywhere depending
on the fund.
You know there are limitedpartners could be individuals,
high net worth individuals whohave exited a company or maybe
an executive company.
They could also invest inventure funds.
(21:08):
Then the family offices couldbe limited partners.
Then the third or fourth I kindof call institutions what are
you going to call?
Almost like some of them, youknow, like a California
retirements.
You know.
Teachers fund right, you know.
And the Texas teachers fund.
They also invest in VC fundsbecause they want to allocate
(21:29):
their capital into differentbuckets.
You know it could be hedgefunds or real estate, some into
the VC funds also right.
Then there are funds totallyset up as a fund of funds People
really they invest in VC fundslike ours.
They have, you know, experiencereally running a VC fund already
(21:50):
or maybe they were a part of alarge institution, like it could
be Stanford or really Harvard,you know they basically they're
all my funds.
So those are the LPs.
The GPs are usually people likeme who are coming from a
(22:13):
background of really starting acompany, learned a lot and
hopefully able to invest theirown money and able to raise
capital because money and ableto raise capital because you
also had to raise capital fromother people.
People also come from theinvestment banking backgrounds.
People worked in different bigbanks and helped basically
(22:38):
fundraising for other startupcompanies or bigger companies,
basically fundraising for otherstartup companies or bigger
companies.
Then other people also comewhere they have done a pretty
good job as a product manager,really a good sales leader in
bigger firms.
They also join as GPs.
But then there are other peoplealso could be where they joined
(23:06):
a venture fund, as an analyst,grown in the venture fund as an
associate, then they will alsoleave and start a venture fund.
So that's the way the GPs come.
The LPs are I've kind ofmentioned four or five buckets.
The GPs could be coming fromthree or four different areas.
William (23:25):
Okay, and so this kind of I eventually want to pivot to
sort of how employees of astartup should think about
equity and compensation.
But I have one last question on, I guess, just the funding and
investment cycle.
So as startups grow and theybegin to scale, there's likely
(23:45):
going to be some sort ofsubsequent funding rounds and
when this happens, additionalshares get issued, which causes
dilution of ownership to someextent for existing shareholders
within a company, for existingshareholders within a company.
Is that something that maybe apotential employee that's going
(24:08):
to look at a startup to maybework there, that they should
understand, and can you kind ofgive a brief explanation of what
this means, both in the contextof the founders and the team
that's running the company, andalso it also impacts VCs as well
.
They have to think about thiswhen they go to invest as well.
Dayakar (24:28):
It's a really important question.
So if you look at it like that,you know I always tell people,
you know, if you don't have todo fundraising, you should not
do it.
You know we would rather.
Really you can grow the companykeeping most of the equity for
yourself.
But in technology side it'spretty hard because technology
is changing so fast.
(24:48):
You need to move fast, as youknow.
Really, if you look at topeight companies in the world all
venture-funded companies if youlook at Amazon's of the world,
google's of the world every oneof them they did a great job, so
able to basically grow thecompany faster.
(25:10):
That's the reason really youwant to raise funding.
So with that, I would say, whenventure funds come and invest,
you want to make sure as afounder, you had to know how
much dilution you're going totake.
You're going to take somedilution, but you had to be very
clear what the dilution will be.
(25:31):
The more traction you get inthe early stage, the less
dilution you take.
Because when venture funds arecoming in, they look at what
kind of risk they are taking.
And if the company, as Imentioned in those two T's, when
venture funds are coming in,they look at what kind of risk
they are taking and if thecompany, as I mentioned in those
two T's one of the traction, ifthey have a pretty good
traction, they got a bettervaluation right, depending on
(25:52):
the revenue and all that.
So that's the number one thingis the founder should focus and
try to get the traction beforego to a lot of funding.
Try to go to friends, family,angel investors, get the product
market fit PMF as quickly aspossible with some good
(26:12):
customers and revenue.
That makes a big difference.
So I would say, really, initialfundraising.
When you go for series and allthat, the rule of thumb is maybe
you give up 30% of equity,right, you're still keeping 70%
for founders and also to youremployees and all that.
(26:35):
You do want to create anenvironment where not only you
as a founder you shoulddefinitely benefit because
you're the one started, ourfounders, I should say but same
time, you want your team to feelalso have skin in the game From
the day one.
You want to make sure, like thesetup, at least 20% of your
(26:55):
equity for employees.
If we you know we never like toinvest in a company they're not
thinking about their employees,right?
And ecosystem players too, andI talked about, really, these
advisors and mentors.
You know you can't afford topay them.
You know they cost a lot ofmoney if you had to pay, but if
you can give them some equity,they also will help you.
(27:16):
They feel that they have skinin the game, right.
So that's it.
From that 20 pool, you canreally take care of your
employees.
Uh, that that should bereplenished.
You know.
Whenever you do next tofundraising too, by the way,
right, initially you will begiving up maybe five, ten
percent.
Then, when you want to hire agood vp of sales, you may have
to give up some more equity toyou know those employees.
(27:39):
So I think, really, you know, uh, for me, you know, successful
companies have done a great job.
Uh, sometime, unfortunately,founders think you know, hey, I
know the whole pie for me ismore than really.
Instead of owning a small pie,I would rather own a small piece
(28:00):
of big pie, and that's the wayI look at it.
Even my own company we raisedcapital and $3 million revenue.
Until that we did not gooutside at all.
So, only from angels and allthat.
But sometimes, when you arereally going into some of the
stuff that's happening in the AIspace.
As you know, it requires a lotof money.
(28:22):
You know, really, you reallyneed that capital just to run
the infrastructure and the AImodels.
Right now, it costs a lot ofmoney.
I'm pretty sure you've beenhearing how much OpenAI spent
really for them to get the model.
You know where they are today,right, so I think that,
depending on what you're workingon but the beauty of really,
I'm pretty sure you know you'vebeen working on the cloud, the
(28:44):
cloud you can start a companynowadays with $500 in a bank and
get an account on Amazon.
Get started.
Then, really, you know, ofcourse, eventually you have to
get good funding for you to grow, for you to grow.
So I think you know.
To answer your question, I hopereally I told you, like the
founder need to make sure, like,get some advice in the
(29:07):
beginning itself how they reallyget diluted each stage in a
series A, b, c, but I would likethe founders to own, when the
company exiting, a pretty goodchunk of the company.
We want to make sure, like thefounders get the most benefit
than, of course, the employees,of course, the investors too.
William (29:26):
That's really good information.
I appreciate that, and I guesswe don't have too much time left
, probably.
But one thing I really wantedto discuss is Just thinking.
You know, if you're an employeeand this is something that
Yvonne and I both are reallyinterested in is understanding
equity.
So, if you think about, likemany, many top engineers out
(29:49):
there will give up a lot of basesalary in favor of you know
some founder stock or good,maybe like a restricted stock
options plan, and you know, youknow, when they go and work for
a startup, and I know a fewcommon, you know a few of the
common types of options, likeincentive stocks options and
(30:10):
like non-qualified stock options, or even, like you know, rsu's,
you know restricted, you knowstock options.
Um, what, what should, I guess,what should a employee that's
seeking to go and work for astartup understand about how
these work and also when theynegotiate?
Because what I see a lot oftimes is, you know, engineers or
(30:31):
new timers are just confusedabout this and they're actually
afraid to ask questions andthey're going out and they're
looking on the Internet andthere's just so much out there.
So, like, I guess, just tryingto boil it down to a, down to as
simple as possible answer, ifit's even possible.
Dayakar (30:47):
Sure, sure, you're exactly right.
It's kind of funny.
My own company I remember mostof these young engineers and I
was also young at that timedidn't understand much about the
stock options and I learned.
Some didn't understand muchabout the stock options and I
learned some.
Then when I used to give stockoptions, most of the time they
(31:07):
never understood hey, no, no, Idon't want any stock option, I
want my salary increase themsome of them they used to have,
like you know, I want to get tomy uh number.
They have.
But I'm glad to see some ofthese employees benefited a lot,
were able to buy an apartmentor a house when we exited our
company.
That made me feel goodsatisfaction as a founder, a CEO
(31:30):
of the company.
It's really important whenyou're giving up a good job in a
bigger company where the bigcompanies also nowadays they
give you know basically stockgrants and those stocks you get
from a company like Microsoftand all that.
They're liquid, also right.
(31:51):
You know once you get it, youknow within one year or so you
can sell it and make you knowsome.
You know at least to use thatmoney for buying a house or
something right.
But when you're joining astartup.
It's a long, long journey, youknow you don't know when are you
actually going to make thatmoney.
So that's one thing you had toget to your head.
You are here for a long timetoo, but good news is I'll tell
(32:12):
you there are some optionsavailable for some of these
employees.
When I started it was not there.
You know that time, once youjoin a company until the company
exits, you don't have any exitplan at all.
So you want to make sure, like,understand how many actually
(32:34):
stocks the company has, right,what are you getting?
Point zero, one percent.
Are you getting one percent ofthe company through your
employee stock options?
Just number one, right, and uh,most of the time, really, the
good news is, uh, um, the stockoption grant, the price is lower
than the actual price.
Really, the common, uh, youknow, uh, other investors are
paying, so usually you get astrike price which should be a
(32:57):
lower than really.
You know what, what the priceis going for, and that's where
it makes a difference, where.
But they had to make sure youknow, understand the tax
implications.
Also, they need to consulttheir CPA if they're getting a
lot of stock at lower price andthey're going to exercise it and
(33:19):
there are some implications.
Until you exercise, there areno problem, but once you
exercise, there are some.
You know you exercise, thereare no problem, but once you
exercise, there are some taximplications.
They need to consider.
So again, how many stock grantsyou are getting and how the
vesting happens.
Is it a vesting?
Most of the time it's afour-year vesting.
Most of the startups do,because you want to make sure
(33:41):
both sides are giving the timeto make sure both sides are
giving their time to make surethe company grows.
So, with that investing, then,what the strike price is and do
you want to exercise thoseoptions once you're able to
exercise, once you exercise?
Nowadays there are also optionsavailable when the company is
(34:05):
raising next level of capital.
You should be able to tell theCEO or the founders hey, when
you're raising next level ofcapital, I would also like to
take some chips off the table.
That's happening right now,before it never used to happen.
Even founders right now beforeit never used to happen even
founders, even initial angelinvestors, are taking some chips
(34:26):
for the table when they'redoing a series B, a series C
fundraising.
So you should be educated andyou talk to, you know your CEO,
who it is, don't be afraid of.
Hey, I would like to take somechips for the table if you, if
you need it, if you need thecash, if you don't need it, if
you believe in the company, andgo for it.
But it's always better to takesome chips for the table.
I always encourage nowadayswhen the founders because you've
(34:50):
been working, you know, withthe shoe strings and really
taking less salary, you know youdo need, you know to make sure
you can take care of your family, so you, you want to make sure,
like you, get some cash out.
So so I think those are thegood.
You know, at least reallyevolving stuff is happening in
the venture world.
It was not there before.
Eyvonne (35:11):
Yeah.
So let's say somebody islooking at a role in a in a in a
startup and they they take some, some shares, and is there a
mechanism for them to sell thoseshares before exit or before
(35:33):
the org goes public?
Is there a way to exercise thatcapital as an employee for a
privately held company?
Dayakar (35:44):
Yeah, as I mentioned before, we did not have that
many options.
But now, as I mentioned, whenthe company is doing next level
of fundraising, the Series Binvestor sometimes what they do,
what they call they're buyingprimary shares and they're also
buying what they call secondaryshares.
(36:06):
The secondary shares arenothing but really employee
shares or angel investor sharesand you know you could.
You know you don't need to sellall of your shares, but you
could sell some of it becausethey're, you know, the founder
or CEO want to make sureeverybody gets an opportunity to
sell some of the shares.
(36:27):
You may get some allocation too.
Then, if the company progressesvery well into Series D and all
that plan to go public.
Nowadays there are someplatforms available.
People are coming and buyingemployee stock actually and what
they call a pre IPO stock.
(36:47):
That's also available nowadays.
You know, you see, like someeven I saw, like right now some
of these companies like OpenAIand all that they're not public,
some employees already sellingand people like us we could go
and buy in open market.
It's not a public market, butthere are systems set up like
that you can go and buy them.
Eyvonne (37:09):
I would imagine if you have pre-IPO shares and you
believe in the company, then youwould have to think very
carefully about whether or notyou wanted to sell those pre-IPO
, because if people are wantingto pick them up, it's likely
people believe that it will bemore valuable after IPO, right?
So you'd have to think long andhard about whether or not the
(37:31):
cash now is worth it and whatthat risk calculation is
post-IPO right, and that's aninteresting calculation, I would
think.
Dayakar (37:43):
I agree with you.
I think that's depending on Ialways tell people you know,
like right, you know, especiallyif you're a young end dollar,
if you believe in it, keep it.
You know, you know the companymore than anybody else.
Right, why you want to sell it,right, so you know.
But no same time again, there'snothing wrong.
Really, I did not.
(38:04):
Do not do be honest with you.
When I raised capital, uh, wewon 80 of the company and the
investors who are coming in.
They asked us you know, do youwant to sell some of your equity
?
I was like no, no, I don't wantto do it, you know.
But it's always good to takesome chips on the table.
William (38:15):
I'm not selling, saying all of it, but they should,
they should think about somesome, you know, cash out, you
know what about like, uh, so youcan, you can like exercise, so
exercising is like a multi-partprocess, but you can, you know,
exercise options early sometimesand you know, for the audience,
(38:36):
this just means purchasing yourstock options before they're
maybe I think it's beforethey're vested um, at time when,
like your, your strike priceand, I guess, like the fair
market value, are closertogether.
You know, to avoid, you know,getting just obliterated with
taxes.
Am I saying that correctly?
Dayakar (38:57):
I think, william, most of the time you can can't
exercise options until they'revested.
Once they're vested you have anoption you buy it, not buy it.
Usually you have the company'sstock option plan.
It is clearly one thing youwant to make sure read the stock
option plan when somebody givesyou.
(39:17):
It should detail everythingright how long you can keep,
even if you leave the company,how long you can keep those
stock granted.
You know vesting happens.
So I would also recommend youknow request your manager or CEO
.
You know stock should be all ofthe stock should be vested
(39:37):
sometime really and some goalsalso, not only the timeline but
also you can set up goals tooand they should be vested or
really the company is sold.
You should make sure all youroptions get vested.
So I would not recommend reallyany company.
Anyway, the company cannotreally let you buy your equity
(40:04):
unless they are vested.
But once they are vested, thestrike price you had to look at
depends on really you know thecompany.
You know right, like what doyou think if the company is
going to get acquired?
You want to make sure likereally at least the stock
options, really the shares youare buying once you acquire
(40:26):
those are your shares.
If you keep for one year, morethan one year, then you pay a
long-term capital gains, right?
If you really you know if thecompany is going to get acquired
within a few months, thenyou'll be paying, you know, like
a regular, ordinary income tax.
So you need to look at, really,you know again, depending on
you know which company you arein, you know you want to
(40:49):
exercise those, you know stockoptions, all right, yeah.
William (40:51):
I guess it makes a lot of sense, you know, to not see
yourself as a financial advisorand you know be read up on the
Internet, but having a realfinancial advisor in these
situations is highly highlyrecommended.
Dayakar (41:05):
Yes, I would say yes, yes, yes it is.
It is Sometimes, as you know,like I don't know.
This is when my first companythis is in 99, 2000, when they
had a dot-com bust happen.
Unfortunately, a lot of theseemployees, you know they hit by
(41:28):
so much of stock.
You know it was a big crisis.
I don't know if you remember ornot, maybe you're young it was
a big crisis.
William (41:33):
One last thing that just popped into my mind, you
know just kind of from your lastanswer a little bit was so
we've been talking about, we'vetalked about startup exits, just
a little bit, and you weretalking about, like acquisition
Is there?
I mean, there's certain, like Iimagine, profiles of companies
that are suited for IPO versusnot.
(41:54):
What indicators might a startupsee or experience, you know,
that make it a good fit to IP?
Dayakar (42:03):
Yeah, I think, really you know.
It's all I talked about, thethree T's, right, you know,
especially, is the team also hasexpertise or will they be able
to go and get good CFO?
There's one thing in my owncompany we are planning to go
public.
We went ahead and a good CFO.
So the team needs to have acombination.
(42:27):
Going IPO is very, veryexpensive and it is really very
taxing for the company becausenow, every month you had to
produce results.
Every quarter you had toproduce results, otherwise the
market is not going to like you.
So that's one thing that youhad to make sure you're ready
for for that stuff, right?
(42:48):
Number two is, really, you know, it's all depending on really
the market size, right, you, youwant to make sure you know, uh,
this company goes ipo, you know, is it 100, 200, 300 million
dollar revenue it can generateby itself, right?
Or, you know, does the team hasexpertise to go and acquire
other companies once they gotIPO, for them to get to the 300,
(43:11):
400 million dollar revenue,right?
So if you look at, I thinkthere's a number, I think almost
95, 97% of companies getacquired right and versus going
IPO, especially nowadays, right,like, really you know, of
companies get acquired right andversus going IPO it's failing
nowadays right, like really, youknow most of these acquisitions
also happen less than $300million.
So I think you know there'snumbers out there you want to
(43:34):
make sure you know, depending onyou know where you are, you
know the product and also theteam, the traction you got.
If you can really prove thosethree things, really you should
be able to prepare for yourselffor IPO.
But otherwise you should alwayslook at how you could be a
(43:59):
major role played in a biggerplatform.
A major role, you know, played,uh, in a bigger platform.
Right, there are really that's.
That's where I tell most of thefounders start really kind of
who I hate to say, but almostlike a you know um, dating these
bigger companies.
Uh, you know, while you knowyou're building the product.
(44:19):
You know, for me I wasfortunate enough to work with
Microsoft and other companieswhile I'm selling my product.
So, right, you know they shouldbecome your kind of what I kind
of call a sell-with or asell-through partners.
Their sales team is sellingtheir product team.
Really, knowing your product,it makes a huge difference.
You know it's a lot easier whenyou're looking at exit when the
(44:44):
product team makes to theircorporate development team
saying, hey, we do need thisproduct, versus you going
through the cartel.
So I think my advice tofounders always look at what are
the best path for you and theemployees and your investors.
Trey Lockerbie.
William (45:02):
Gotcha, thank you, that's, and your investors,
gotcha, thank you.
That's great advice, greatguidance.
We're definitely at time.
We used, I think, the wholeblock, so I guess this is where
it ends and I just want to thankyou.
So thank you for being sogiving with your time, and I
(45:26):
guess do you have anywhere onthe internet that you post or do
anything like linkedin ortwitter or any of the social
platforms?
Dayakar (45:32):
mainly linkedin.
I would say like I'm not oninstagram or anything like that,
but I am.
But I don't think I post a lotof instagram, but on linkedin I
do post, you know, uh, some ofmy thoughts and you know, and
especially some of it is ontechnology, and also I post a
lot about our portfoliocompanies because they are the
one really doing actual work, soI like to promote them and the
(45:55):
founders.
You know.
You know, I don't know if youhave seen or not, but we post a
lot about Alkira and lately,some of the investments we have
done in a company called Dice.
So we've been doing a lot ofkind of really, why would you
invest in a company also andtheir company making any product
(46:15):
announcements or any othermajor partnership they have done
?
But I do post my own.
Really I'll be, you know,hopefully able to give you other
good news.
You know I'm, uh, hopefully,finishing up a book actually
right now and it's kind ofalmost what the questions you
asked about it I'll be able tosend you once the book is done.
(46:36):
So I'll be posting some moregreat.
William (46:39):
Yeah, I don't know the timing on that, but I think, uh,
we have a few episodes that aregoing to be launching before
this one, so maybe we could timeit with the publishing of the
book.
I don't know if it would workout, but we can discuss the
logistics, sure.
Dayakar (46:54):
Thank you again, both of you taking your time and
really enjoyed your questions,especially pertinent to founders
and also employees.
Very, very thoughtful what youthought about it, Thank you.
You know, always we think aboutfounders, but really you guys
really thought about employeesis very, very important.
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